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AUD stays in the range

Published March 4, 2019

AUD managed to hold 0.7070 on Friday and has crawled its way back above 0.7100 this morning. Not overly exciting I know, but we do appear to be caught in a tight trading range that has been roughly bounded by 0.7000 and 0.7300 for the last 6 months. A similar pattern has emerged in EURUSD as it heads towards the tightest quarterly range since the Euro’s inception, but an explanation can be provided by the massive amount of option expiries approaching. Over 10 billion euros of options within the 1.1200/1.1500 range expired last week, and another 85 billion are due to expire through March. Notably the size of these option expiries is continuing to grow as traders sell other options and premium amounts  to cover the cost of the options they already hold, thus restricting the overall trading range by sheer volume.  The good news is that in April the expiry volumes drop enormously, so the potential for a return to volatility and breaking out of the recent ranges are high.

The Trump-Kim summit now sounds like yesterdays news, and China is encouraging further talks  .. “We sincerely urge all parties to approach this constructively and contribute to the comprehensive resolution of the issue.” .. this must be the new world order?  Although some progress has possibly just been made as the US and South Korea just announced that they have “decided to conclude the Key Resolve and Foal Eagle series of exercises,” a major bug bear of the North as it involves 230k combined troops. We await some response from Kim today.

Chinese data on Friday was positive and economists are starting to call for a bottom in the Chinese economic cycle – watch that space!. RBA cash rate due tomorrow. 0.7070 still supports for now.

AUD and EUR have been range bound (Reuters)